Abstract

http://ssrn.com/abstract=520805
 
 

Citations (2)



 
 

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MaxVaR: Long Horizon Value at Risk in a Mark-to-Market Environment


Jacob Boudoukh


Interdisciplinary Center (IDC) - Rothschild Center

Richard Stanton


University of California, Berkeley - Finance Group

Matthew P. Richardson


New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Robert Whitelaw


New York University; National Bureau of Economic Research (NBER)

March 2004


Abstract:     
The standard VaR approach considers only terminal risk, completely ignoring the sample path of portfolio values. In reality interim risk may be critical in a mark-to-market environment. Sharp declines in value may generate margin calls and affect trading strategies. In this paper we introduce the notion of MaxVaR, analogous to VaR in every way except it quantifies the probability of seeing a given loss on or before the terminal date rather than at the terminal date. Under standard set of assumptions we provide a simple formula for MaxVaR and examine the ratio of MaxVaR to VaR. For reasonable parameterizations MaxVaR may exceed VaR by over 40%. MaxVaR exceeds VaR by as much as 80% or more for high Sharpe Ratio hedge-fund-like return distributions.

Number of Pages in PDF File: 9

Keywords: Value at risk, drawdown risk, long horizon risk

JEL Classification: G00

working papers series


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Date posted: March 26, 2004  

Suggested Citation

Boudoukh, Jacob and Stanton, Richard and Richardson, Matthew P. and Whitelaw, Robert, MaxVaR: Long Horizon Value at Risk in a Mark-to-Market Environment (March 2004). Available at SSRN: http://ssrn.com/abstract=520805 or http://dx.doi.org/10.2139/ssrn.520805

Contact Information

Jacob (Kobi) Boudoukh (Contact Author)
Interdisciplinary Center (IDC) - Rothschild Center ( email )
P.O.B. 167
Herzliya, 46150
Israel
HOME PAGE: http://cc.idc.ac.il
Richard H. Stanton
University of California, Berkeley - Finance Group ( email )
Haas School of Business
545 Student Services Building #1900
Berkeley, CA 94720-1900
United States
(510) 642-7382 (Phone)
(510) 643-1412 (Fax)
Matthew P. Richardson
New York University (NYU) - Department of Finance ( email )
44 West 4th Street
Suite 9-190
New York, NY 10012-1126
United States
212-998-0349 (Phone)
212-995-4233 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Robert F. Whitelaw
New York University ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0338 (Phone)
212-995-4233 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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